[Financial Microscope] Oil Prices, Interest Rates, and the Economy: The Key Factors Shaping Korea's Exchange Rate Around Chuseok

Impact of Oil Prices and Global Monetary Tightening on Dollar and Yen Movements

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The won-dollar exchange rate has once again fallen to the 1,350 won level. This drop is primarily due to falling oil prices, which have become a key factor influencing currency movements, as well as expectations of eased tensions between the United States and Iran and hopes for increased crude oil exports from Saudi Arabia. Experts expect the exchange rate to remain in the 1,300 won range around the Chuseok holiday, reflecting movements in oil prices, changes in major global currencies such as the dollar and yen resulting from monetary tightening in key economies, and overall economic conditions.

On the 21st, employees are monitoring the stock market and exchange rates in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul.

As of 9:02 a.m. on September 23, the won-dollar exchange rate was trading at 1,351.5 won in the Seoul foreign exchange market. On a weekly closing basis (at 3:30 p.m.) the exchange rate, which fell below 1,400 won on August 19, dropped further to 1,336.1 won on September 9. Afterwards, influenced by high oil prices and interest rate hikes in major countries, it hovered around 1,380 won before falling again to 1,358.2 won the previous day.

The decline in oil prices the previous day was attributed to the possibility of a meeting between U.S. President Donald Trump and Iranian President Masoud Pezeshkian at the United Nations (UN) General Assembly. On September 22 (local time), U.S. and Iranian delegations held discussions at the UN headquarters in New York. President Trump stated, "The delegations held a very productive meeting and a follow-up discussion is scheduled for the near future." In addition, expectations that Saudi Arabia would increase crude oil exports had an effect. With Saudi Arabia's oil shipments through the Red Sea having been disrupted by military clashes with Houthi rebels, news that the country is expanding exports via the Strait of Hormuz has eased concerns about supply disruptions.

However, experts say it is difficult to predict further declines in oil prices. Park Sanghyun, a researcher at iM Investment & Securities, pointed out, "While it is positive that the sharp rise in oil prices has subsided for now, it is still uncertain whether this downward trend will continue." Kyungwon Min, an economist at Woori Bank, noted, "Given that President Trump's Iran policy oscillates between negotiation and military pressure, the uncertainty surrounding the Middle East remains high, and this supports dollar strength." There is also a likelihood that Saudi Arabia's oil shipments through the Red Sea could be disrupted again by attacks from Iran. Moon Daun, a researcher at Korea Investment & Securities, said, "There is a high possibility that Iran will try to buy as much time as possible until the U.S. midterm elections in early November," and diagnosed, "During October, there could be increased instability and risk aversion in financial markets."

Major global economies have implemented monetary tightening this month in response to supply shocks and secondary effects caused by high oil prices. The European Central Bank (ECB), the U.S. Federal Reserve (Fed), and the Bank of Japan (BOJ) all raised their policy rates by 0.25 percentage points (25 basis points). The Bank of England (BOE) kept its rate steady at 3.75% per year, but the number of members supporting a hike increased from two to three. In particular, the Fed’s rate hike and its indication of further increases have intensified upward pressure on the dollar. The dollar index, which measures the value of the dollar against the currencies of six major countries, has remained above 100 since September 16.

Ha Gunhyeong, a research fellow at Shinhan Investment & Securities, said, "Monetary policy in major countries has entered a phase of assessing the effects of the tightening measures already implemented." In Korea, strong growth is being offset by lackluster household demand driven by consumer prices, meaning demand-pull inflationary pressures remain subdued. He added, "Unless there are additional geopolitical shocks, the market will likely remain in a wait-and-see mode," noting that "whether secondary impacts are confirmed will be a key variable determining the interest rate path."

The fact that Korea's economic momentum remains robust compared to the United States is a factor pushing the exchange rate lower. Exports during the September 1–20 period also confirmed a solid trend, especially for semiconductors. According to export and import data from September 1 to 20 released by the Korea Customs Service, exports amounted to $71.4 billion, an increase of 78.3% compared to the same period last year—an all-time high for this period. Semiconductor exports during this period reached $34.128 billion, soaring by 259.4% from the previous year.

The movement of the yen is also a variable. The yen continues to show weakness, remaining around 157 yen to the U.S. dollar. It is unlikely that the interest rate gap between Japan and other major economies such as the United States will narrow anytime soon as monetary tightening continues elsewhere. Researcher Park noted, "If the yen’s further depreciation becomes more evident, there is a possibility that the Japanese government will again intervene in the foreign exchange market."

This content was produced with the assistance of AI translation services.